A blawg containing a periodic review of topics of interest in corporate and commercial law that impact India

Sunday, July 7, 2013

Committee Report on Foreign Portfolio Investments

In mid-June,
SEBI had announced
the submission of a report by the Committee on Rationalization of Investment
Routes and Monitoring of Foreign Portfolio Investments under the chairmanship
of Mr. K.M. Chandrasekhar. The full report in now available
online.

The key
recommendations of the committee are to combine the erstwhile portfolio
investment categories of foreign institutional investors (FIIs), sub-accounts
and qualified financial investors (QFIs) into a single investor class of
“foreign portfolio investor (FPIs)”. This category would permit foreign
investment in listed securities of up to 10% equity in a company. If these
requirements are not met (or if they are exceeded), the investment would fall
within the foreign direct investment (FDI) category. After some deliberation,
it was decided to retain two other existing schemes without combining them into
the proposed FPI scheme: they are the non-resident Indian (NRI) scheme and the
foreign venture capital investor (FVCI). This is due to the special nature of
the investment routes. The other significant proposal is the establishment of a
self-regulatory mechanism for registration and monitoring of FPIs, which will
be overseen by designated depository participants (DDPs) rather than directly
by SEBI.

While this
consolidation exercise is essential and timely, its implementation would
require coordination among several regulatory bodies, primarily SEBI, RBI and
the Central Government. Such proposals have been on the anvil since the report
of the Working Group on Foreign Investment in India put out in 2010, and
although one can expect very little resistance to a simplification exercise
such as this, the actual implementation is likely to take some time and may
involve some teething troubles as well.

For a deeper analysis and
commentary on the consolidation exercise, see this discussion
on CNBC India: The Firm and Sandeep Parekh’s column
in the Financial Express.

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